China’s irresistible rise

China’srecently released GDP data for 2017 confirm it: the country’s dramaticrise, with the concomitant increase in its global economic relevance, isnot slowing down.To be sure, there has been fresh media chatterabout the reliability of Chinese data, owing to reports that someprovinces have been overestimating their economic performance in recentyears. But for all we know, other provinces may have been doing theopposite. And in any case, the provinces that have admitted to inflatingtheir data are not large enough to have a significant impact on thenational picture.Moreover, two key points are often lost in thedebate about China’s official statistics, which the country firststarting releasing in the late 1990s. First, the debate is relevant onlyif China is increasing the degree to which it overestimates its data.Second, China’s published data should be considered in the context ofits trading partners’ own figures, as well as those of majorinternational companies that do business in China. As I have writtenbefore, it is telling that China has overtaken both France and theUnited States to become Germany’s top trading partner.As for theannualised 2017 data, most of the media focus has been on China’sreported real (inflation-adjusted) GDP growth, which, at 6.9%,represents the first acceleration in a couple of years and animprovement even on the government’s soft target rate of 6.5%. But themore important figure is China’s nominal GDP growth translated into USdollars. Owing partly to a strengthening renminbi, China’s totaleconomic output grew to $12.7tn in 2017, representing a massive increaseof 13% ($1.5tn) in just 12 months.Clearly, those who have warnedthat China is following in Japan’s footsteps and heading for a long-termdeflationary cycle have been far off the mark. To my mind, suchsimplistic comparisons are never particularly useful. Not only has Chinaaverted the risk of deflation; it has done so with an appreciatingcurrency.When my former Goldman Sachs colleagues and I first startedtracking the rise of the BRIC economies (Brazil, Russia, India, andChina) in the early 2000s, we figured that it would take until the endof 2015 just for China to catch up to Japan. Yet 2018 has barelystarted, and already China’s economy is two-and-a-half times larger thanJapan’s, five times larger than India’s, six times larger thanBrazil’s, and eight times larger than Russia’s. It is also larger thanthe entire eurozone.China’s staggering $1.5tn expansion in 2017means that, in nominal terms, it essentially created a new economy thesize of South Korea, twice the size of Switzerland, and three times thesize of Sweden. The latest data suggest that China could catch up to theUS, in nominal terms, sometime around 2027, if not before. Within adecade after that, the BRIC countries collectively could catch up to theG7 economies.Of course, such an achievement would be driven largelyby China. Still, taken together, the remaining BRICs are larger thanJapan. And now that Brazil and Russia have put their recent recessionsbehind them, the BRICs will likely make a large contribution to nominalglobal GDP in 2018.One final consideration for the global growthoutlook is the Chinese consumer. Many commentators still discuss Chinaas if it were solely an industrial power. But consumption in China hascrept up nearly to 40% of GDP. Since 2010, Chinese consumers have addedaround $2.9tn to the world economy. That is bigger than the UnitedKingdom’s entire economy. British trade negotiators should take note:after Brexit, the Chinese market will be more important to the UKeconomy than ever.Yet, in addition to its annualised data, Chinaalso recently reported its December data, which revealed monthlyreported-retail-sales growth of a slightly disappointing 9.4%year-on-year. One hopes that this is a reflection not of a consumptionslowdown, but rather of Chinese policymakers tightening financialconditions in the second half of 2017.Needless to say, as Chinabecomes increasingly important to the global economy, its upside anddownside risks will continue to have far-reaching implications for therest of the world. And, indeed, a consumption slowdown would be bad notjust for China, but also for the rest of the world economy, which is nowdepending on China’s shift from industrial production to domesticconsumption. – Project Syndicate* Jim O’Neill, a former chairmanof Goldman Sachs Asset Management and a former UK Treasury Minister, isHonorary Professor of Economics at Manchester University and formerChairman of the British government’s Review on Antimicrobial Resistance.